By UDEME EKWERE

The decline in the value of equities in the Nigerian stock market since the beginning of this year has been further compounded by the recent nationalisation of three banks with unprecedented losses recorded in the last 10 weeks, UDEME EKWERE writes.

The market capitalisation of listed equities on the Nigerian Stock Exchange has dropped by N988bn or 12 per cent in the last 10 weeks, meaning that the equities market lost the amount during the period.

Between June 1 and July 29, 2011, the market capitalisation of the 194 First-Tier securities had recorded a loss of N651bn, closing at N7.681tn on the last trading day of July from N8.273tn at the beginning of June.

The loss has grown further in August by N396bn as at Friday, to hit a staggering N988bn in the last 10 weeks.

The decline has been traced by analysts to a number of factors ranging from the political turmoil in North-Africa and the Middle East, insecurity in the polity following before and after the April general elections, to the acquisition of three banks by the Asset Management Corporation of Nigeria after their nationalisation.

Trading activities had improved significantly when AMCON began operations late last year, hitting N8.885tn on January 25, 2011.

But activities began to drop steadily after that date, leading to a loss of N988tn as at Friday.

Analysts at Meristem Nigeria Limited noted in their weekly report on Friday that the nationalisation of Afribank Plc, Spring Bank Plc and Bank PHB Plc had perhaps, the most significant effect on the market in recent times.

According to them, the market indices, especially the banking index, losing close to 10 per cent in a period of just three trading days is a heavy blow to the market.

Meristem said in its report for the week, “The nationalisation of three of the Central Bank of Nigeria-intervened banks that were yet to sign Transaction Implementation Agreements (with potential investors) sent waves of shock through the marketplace given its likely consequence on the ordinary shareholder.

“The move, which was made by the Nigerian Deposit Insurance Corporation and supported by the CBN was an attempt to protect depositors’ fund and avoid another systemic bank failure, and that single event pressurised investors to panic wide selling, resulting in the NSE All-Share Index plunging the most on Tuesday, losing 193 basis point and the market losing a cumulative of 460 basis points between Monday and Wednesday last week.”

The Central Bank of Nigeria had two Fridays ago announced the nationalisation of the three banks due to their alleged failure to recapitalise in line with the CBN directive.

The banks, along with Union Bank Plc, Intercontinental Bank Plc, Finbank Plc and Oceanic Bank International Plc, were previously given up till September 30 to recapitalise or face liquidation.

But the CBN, after reviewing the situation, concluded that it would be risky to allow the three banks to continue to operate till September 30.

The Managing Director, Ideal Securities Limited, Mr. George Okafor, had told our correspondent last week, that many investors lost huge amounts in the market as a result of the decision, which also led to a general loss of confidence in the market.

According to him, no investor will be willing to buy more shares having lost huge amounts or seen their friends and family members losing heavily in the market in recent times.

He said, “You know that some of the investors who had shares in the affected banks also invested in some other companies; so, it is only natural that they will tend to withdraw from the market following the announcement of the nationalisation of the banks.

“The truth is that the huge offloads that were recorded on Monday was a way of investors showing their displeasure over the occurrence.”

Okafor noted that even stockbrokers were affected by the CBN decision since they also invested in the three banks.

“It may interest you to know that by that action, many stockbrokers lost almost everything they had, because they usually purchase shares to hold and sell to investors when the need arises, only for them to hear that they have lost everything to the nationalisation. There was a deadline, why was it not followed? These are all important issues that were on the mind of investors,” he said.

To analysts at Vetiva Capital Management Limited, the news of the bank nationalisation had caused untold panic in the system, causing investors to dump their stocks, especially in the banking sub-sector.

They said, “Slides in the equity scene towards the tail-end of the previous week spilled over into the past week. On Monday, the market lost 186 basis points following news of the nationalisation of Bank PHB, Afribank and Spring Bank following the CBN decision to revoke their licences, prompting a massive sell-off in banking stocks.

“The market regressed by a further 193 basis points on Tuesday as investors scrambled to dump their banking stocks.”

The Managing Director, Financial Derivatives, Mr. Bismark Rewane, however, said that the government action was to prevent other banks that had inter-bank deposits with the nationalised banks from withdrawing their funds before the September 30 recapitalisation deadline.

He noted that the lapses of the former directors of the three banks, which led to the poor performance of the financial institutions, were enough to make the CBN apply necessary sanctions on them.

Source: Punch